KUALA LUMPUR (March 13): Five years after the onset of the Covid-19 pandemic, the global economy has largely recovered, with corporate credit quality making a strong comeback, according to Moody’s Ratings.
The rating agency said on Thursday that while the pandemic initially triggered widespread credit downgrades, the intervention of governments and subsequent economic recovery have enabled the restoration of credit stability, although some sectors continue to experience lasting challenges.
Moody's noted that corporate credit quality has substantially rebounded from the early shock of the pandemic.
The rating agency highlighted that their proprietary measure of rating movement, known as "rating drift," now aligns broadly with historical averages, reflecting an overall return to pre-pandemic credit conditions.
Aggregate metrics such as leverage and interest coverage are now comparable to 2019 levels, despite the ongoing impact of higher interest rates.
However, the recovery has been uneven, as speculative-grade credits were disproportionately affected by the pandemic, compared to their investment-grade counterparts.
These entities faced greater vulnerabilities, including revenue losses, supply chain disruptions, and financial market instability, compounded by weaker liquidity, riskier business models, and heightened refinancing risks.
Additionally, they felt the effects of interest rate hikes and stricter lending conditions more acutely in 2022 and 2023.
Moody’s noted that while certain industries have made a strong recovery, others bear the scars of the pandemic's disruptions, citing that the office real estate market was notably reshaped by the rise of hybrid work models, while the pandemic accelerated the shift towards digital advertising and social media, placing pressure on traditional broadcast media.
Retailers with brick-and-mortar operations also struggled in the face of rapid growth in e-commerce.
On a positive note, some sectors have benefitted from the pandemic's impact, with the surge in demand for digital technologies having created significant revenue opportunities for technology companies.
Meanwhile, record prices for certain metals between 2021 and 2022 helped mining companies reduce debt and pursue mergers and acquisitions, strengthening their financial positions.
In other sectors, the pandemic-induced volatility has masked long-term structural shifts.
The chemicals industry, for example, has been grappling with inventory destocking, weakening demand, and declining prices, following years of price volatility triggered by supply chain disruptions.
Similarly, the auto industry, despite achieving record profits in 2023, continues to face difficulties in aligning production with demand, amid the transition to electric and hybrid vehicles, alongside increasing competition from Chinese producers.